Interesting Facts about Mexico Research Paper Example | Topics and Well Written Essays - 1250 words

Interesting Facts about Mexico - Research Paper Example A series of measures were put in place in the late 1980s and early 1990s by the Mexican administration geared towards market liberation. Initially, Mexico had adopted protectionist market policies in order to boost industrial growth and home economy; however, these policies did not achieve the expected results. In the 1980s, Mexico faced inflation and there was a decline in the living standards. The country experienced a number of economic challenges in the 1982 debt crisis in which it was unable to meet its foreign debt payment obligations. The government addressed these challenges by privatizing government-owned industries and the journey to liberalization began (CRS 12). The country liberalized foreign market and investment by signing the General Agreement on Tariffs and Trade and the (NAFTA) North American Free Trade Agreement which saw the privatization of nearly 1000 state enterprises, including the banking sector which had been state-owned since the crisis of 1982 (Hanson 2). These reforms in the initial stages attracted a substantial amount of foreign private investments until 1993 when the foreign capital inflow started to go down. By the close of the year 1994, Mexico had currency crisis leaving the government with no option, but to ditch the fixed exchange rate and replace it with a floating exchange rate policy. The result of this was that Mexico’s currency went down by about 50% within a period of six months, leading the country to deep recession. The currency (Peso) was floated because there was overspending in the economy which generated a substantial currency deficit, the government had no sufficient reserves yet it had accumulated high levels of debt, and the banking system was overexposed. After 1994 devaluation, President Ernesto Zedillo of Mexico took several measures to restructure the economy and reduce the effects of the currency crisis on the disadvantaged sectors of the economy. The main aim here was to create conditions for econ omic growth and adjust the economy within a short span of time. The IMF and the United States came to the aid of the government pooling together a financial support of 50 billion dollars. The Zedillo Administration adopted tighter monetary and fiscal policies to counter inflation and cushion some costs of the crisis in the banking sector. The plan entailed an increase in the VAT, cutting down budgets, increase in the price of gasoline and electricity and the decrease in government subsidies. The peso depreciation through the end of the 1990s led to increasing in exports and was of benefit to the export sector. However, the devaluation, on the other hand, reduced the real income hurting the poor and the emerging middle class. The signing of the NAFTA and shift of the Mexican economy to export based aided to neutralize the impacts of the Peso devaluation. President Ernesto Zedillo administration and that of his successor, President Vicente Fox, carried on with market liberalization, p rivatization of government enterprises, and economic deregulation. Through these tighter monetary and fiscal measures, these administrations were able to lower down fiscal deficit, bring inflation under control, and spur economic growth. Current Economic Situation The Mexican economic growth was 3.9% in the year 2011 and is projected to grow by 3.7% in the year 2012 and 3.8% in the year 2013.